“From the Trader’s Desk” Ep. 2: Dead Cat Bounce

Welcome to “From the Trader’s Desk” and my recap of “Dead Cat Bounce”. (I’m just going to say this upfront: I hate that term, but only because I’m a cat momma!)

We open up at the Spartan-Ives sponsored “Thought Leaders” conference, which costs $3,000 to attend. These types of conferences are common, and can be market movers. Certain managers will mention a stock they like (or don’t) and it will move the stock price as they are speaking.

Source: Showtime

On stage we have a panel of managers all sitting like kings in big chairs, suggestive of thrones. Potential Wendy thief Todd Krakow is talking about Pindar. Now, I have no idea who that is, so thank you Axe for the line “you wouldn’t know Pindar from Pantera”.  Pantera I know. (I will continue to appreciate Axe and his love & knowledge of 80’s metal bands!) His blue-collar background shows when he says “the idea that Krakow is a thought leader” because of “a few dollars in their pockets is laughable”. Axe comes from a place where money doesn’t equal smarts. How much you are worth is not your value where Axe is concerned. We know there is a reason he is so personal, so vicious: Krakow tried to poach “his Wendy”. In that moment, he loses his cool. I fear that is something that is going to become a pattern for Axe this season.

Krakow is going to give as good has he gets. He believes funds like Axe Capital are “out of ideas” and “cut corners” to have an edge. But, what about the $45M in fines Krakow paid to the UK government, Axe reminds him (and the crowd). The big dogs are going at it, and Lawrence Boyd, head of Spartan-Ives rings the bell so they can go back to their respective corners. Krakow is told he overstepped, and offers a most insincere apology. Axe gets up telling the crowd he will be at the bar if anyone wants real conversation. Krakow goats Axe: “Hit, run and hide. You’ve been showing the SEC the same move for years, but eventually, they catch you”. Krakow reminds me of the little dog who will just keep nipping at your heels!

Source: Showtime

Outside of the conference, Axe tells Krakow “that’s what you get for trying to steal one of my employees”. Wendy’s name is not mentioned, but Krakow knows exactly who Axe is talking about. “If you don’t want to lose a valuable asset, don’t let her walk out the door”. One thing I noticed in this scene is the height difference between Axe and Krakow. Axe is basically towering over him, but for that moment, Krakow has the upper hand.

Most fund managers won’t go at each other in such a personal way, in such a public forum. Friends can be on the opposite side of trades, but at the end of the day, it’s just business. You never want to let your personal feelings cloud your judgment when it comes to trading. The only time I recall such a personal feud between managers was back in January 2013 when Carl Icahn and Bill Ackman went at it for over 30 minutes on CNBC. It was gripping TV, straight out of the WWE. It was all anyone on the Street was talking about for days. But to this day, I believe the personal animosity between those two adversely effected how they view their positions on the company Herbalife.

Axe has a more financial way to get at Krakow, and it’s all thanks to Taylor.

Mafee knows a way to screw Krakow. He says he noticed that Krakow has been talking up China, “watching factories grow”. Mafee wonders “how is he seeing this?” Axe is not buying for a second that Mafee came up with this idea. Axe likes Mafee, values Mafee, but knows that this type of idea did not come from Mafee. Again, Axe knows the players, not just the game. He fesses up: it was my analyst. Axe tells Mafee “get him in here”. I noticed that Axe went straight for the male pronoun. Is Axe sexist? I don’t believe so, but it goes to show how male dominated this industry is.

Source: Showtime

Taylor’s introduction to Axe is “my pronouns are they, theirs and them”. Axe does not bat an eye. Those things don’t matter to him. A person’s value is what they bring to the table, their insight; not what is on the outside, but what is on the inside. Axe is the pack leader. As that leader, he only cares about what’s best for the pack. I loved his non-reaction to Taylor. But he only gives them two minutes to prove their value.

Taylor anticipated that after the bad blood at the conference, there was “roiling antipathy” so they did some digging on Krakow’s public statements for the last two years, and noticed that his tone on China changed in January 2016, more bullish (positive). Taylor believes Krakow was using satellite images as a basis of his stance. Using these images is a very new, expensive thing.  I have hear of funds looking at parking lots of retailers, car dealership lots to determine how cars are selling, and the condition of farms to see how crops are doing. It doesn’t give you any real answers (Target’s parking lot may be full, buy are people buying, or just comparing prices and then buying on Amazon?) just another data point to come to a conclusion.

This is where Taylor’s value shines. They don’t just look for the obvious, they peel back the onion! Taylor not only finds out which satellite company Krakow uses, but since he will most likely be the biggest user, they check on what images he is viewing the most. It’s a microchip factory. But Axe knows that Taylor has found something more. In January 2016 the factory went from dead to bustling with trucks. Those images would encourage foreign investment. However, Taylor found an article that suggested a discrepancy between what the images were showing and the economic numbers the Chinese government was reporting. As an aside: this is the issue with investing in China. Since it is a communist government, they control everything. You can never be sure if the numbers are on the up and up. They want to project strength to attract investment. I do not trade any Chinese based equities.

The Chinese knew they were being watched and ordered their factories to seem busy, to fool the satellites, and hence fool investors . The next step? Taylor suggests shorting the parent company of the warehouse Krakow is invested in. But, that is not good enough for Axe. “As Chanos says, China is a pig on LDS; you don’t know which way it’s going to run”. Jim Chanos is a fund manager well known for being “King of the Short” and has been very bearish on China since 2010. (Brian Koppelman mentioned at Paley Live that Chanos would be on an episode of Billions this season when I asked him about his response from the hedge fund community.) Find out who the fake factory is supplying, and that will be the key! It seems Taylor and Axe have the same thought process when it come to companies. Axe is impressed. Has he met his match?

Maffe tells Axe he has more on Krakow, but Axe tells him “get your better half in here!” He knows Taylor is the brains of this operation! Anata-Tek! (Henceforth to be known by the fake ticker symbol I’m giving it: ANTK) ANTK has a rising share in wearables (think Fitbit). When the stock went public (IPO) 2 years ago, it was not that well received; however the stock has been on a run ahead of the release of its flagship product The Ring. Axe knows it’s a prototype, but can they meet demand? Not if their microchips being supplied by a fake company.

Source: Showtime

Axe tells both Taylor and Mafee to short “2 million” and cover when it’s down 10%. (I’m going to guess he means shares of the stock and not $2M worth of stock. When trading, you usually trade in shares not in dollar volume.) Axe tells Stephanie, when the order is completed, send a tweet from his account: “Who’s supplying Anata-Tek? Next Lumber Liquidators? (Ticker symbol LL) ” Twitter is now being used more and more by funds to move stocks. I cannot tell you how many times I will see extreme movement on a stock, do a search on Twitter, and see tweets like “$DIS chatter” or some other kind of rumor. However, you will get a manager tweeting about a stock as well. The firm Citron Research, a known short seller, frequently tweets negative opinions on stocks. I really dislike this practice. A manager takes a short position, then tweets out some type of opinion or a hint or impropriety, which moves the stock. I think it’s front-running. Axe tells Stephanie specifically to send the tweet after the order is complete. He knows since it’s coming from him, it will move the name.. The tweet is vague, but by linking ANTK with a company like LL he is casting doubt on ANTK without any real facts. (LL is a hardwood flooring company that has many issues over the last few years: with the EPA, the importing of illegal hardwood flooring and high levels of formaldehyde in its flooring. The stock price has dropped from approximately $114 in October 2013 to $17.30 today.)

“I want him to know it’s me” Axe has Krakow in his sights, and he doesn’t care who knows it. There is a difference between confident and cocky, and I think Axe is teetering on that line.

ANTK sells off after hours, and Mafee has covered the short. Axe is not done and wants more than a pound of Krakow’s flesh. He wants Mafee to short the stock again. If the stock was that fragile and tanked on a tweet, then people are scared. Axe tells Mafee to “wait for the dead cat bounce”, about 1%. There is usually a time a stock will rise, even in a selloff. It is short-sellers covering their positions. When you cover or close out a short position, you need to buy the shares to replace the ones you borrowed for the initial short. This will cause the stock to rise. However, when those buyers are out of the market, the stock will start to decline again.

In Axe’s office, Stephanie questions his strategy; she thinks it could be a trap, since Krakow is aware this is personal. The best strategy may be restraint. Wags is not having it. How dare someone “impugn the judgment of the Caesar?” He is stunned when Axe takes Stephanie’s advice, and waits to make his next move until they get more info from Dollar Bill. The look on Wags’ face is one of shock, but you also see something you have never seen in him before: uncertainty. Has someone taken his place at the side of the Caesar? If all Axe cares about is a person’s value to the firm, then what is his? Axe says they need to make a “fundamental change in their standing”. Change is coming and Axe needs to stay ahead.

Source: Showtime

Dollar Bill gets the goods on the factory. He has a contact with photographic proof the factory is fake. When Dollar Bill implies his guy can get more dirt, if he gets “his beak wet”, Stephanie quickly jumps in and makes sure everyone “stays on point”. Things are going to be done a little differently at Axe Capital from now on. I wonder if Dollar Bill will comply or find a way around this.

The info confirms Taylor’s premise. “Just like Taylor anticipated”. Dollar Bill questions. “she saw all of that from outer space?”. He is quickly correctly by Axe, “they”. A look passes between Bill and Wags. I think it is safe to say, Dollar Bill Stern is old school, and may have to get used to a lot of new things at Axe Capital. It is going to be interesting to see how some of the characters react to the changes. A lot of people resist change, even if it’s for the better.

ANTK’s stock is down by half and Krakow fired the CEO. All in all, a good day for Axe Capital. Axe tells Taylor they did a good job on rooting this story out. They are happy to get the recognition but Axe wonders why. Why should it matter to Taylor? They turned down a job, so what’s their motivation? “I just like being right!” A core trait Axe and Taylor share. It’s not about the money; it’s about being right, it’s the winning.

source: Showtime

Axe tells Taylor to forget school. Get their education at Axe Capital and make money doing it. I don’t think anyone should throw away an education. However, I never went to college. I started working on Wall Street a month out of high school. I learned on the job, things that would never been taught in a classroom. We are in a different time now, and I know it would not be possible to do that today. But in this case, I have to go with Axe. Taylor sees the world differently, maybe because they withdraw from people “like they are another species”. Axe tells them that “you retreat behind your aquarium walls, watching. You don’t realize that glass, it’s not a barrier, it’s a lens.” That is their value. That is their asset. Axe has this edge as well, and he sees that in Taylor. I cannot tell you how much I loved that scene. Everyone is different in one way or another; when you realize that difference is what makes you unique, and gives you an edge, the world opens up to you.

Taylor is in! And not just for the 40 hour work week. Axe is paying for 24/7 and that is what he is going to get.


Author: Lady Trader

"Lady Trader" is a Brooklyn girl, and a Wall Street lifer! Recently fought cancer, and won! I love heavy metal, history, sci-fi, oh, and blogging about Billions and it's great lead actor, Damian Lewis!

12 thoughts on ““From the Trader’s Desk” Ep. 2: Dead Cat Bounce”

  1. I understood dead cat bounce was an intermittent surge, but I didn’t realize why/how until now. Thank you for explaining it was short-sellers covering their positions. Makes much more sense now. When Axe said short two million, I, too, wondered at the time “two million what? Dollars?” But after reading your blog it’s clear he was talking about shares, not dollars. I also understand the China conundrum better after ready this, shady China! I had no idea who Chanos was either.

    I think I understand from the context what front running means, but didn’t see it in the #billions glossary so I had to look that up. Also you mentioned “edge.” I’ve been seeing “black edge” a lot on Twitter, especially since Sheelah Kolhatkar’s book came out and Krakow said “black edge” at the Thought Leaders Conference. What exactly do they mean by black edge? Is that like the fine line between legal and illegal trading?

    I sure would have liked to have seen Carl Icahn and Bill Ackman on CNBC. Wonder if it’s somewhere on the net?

    Lastly, and I cringe as I type this, I’ve been seeing rumors on Twitter about Taylor’s true reason for being at Axe Capital. When I read your section “They are happy to get the recognition but Axe wonders why. Why should it matter to Taylor? They turned down a job, so what’s their motivation?” I started to question even more myself: “Yeah, WHY are they really staying?” They were so adamant they were going to college, where, and why, so steadfast. Then flipped on a dime, or so it seemed. I keep chanting to myself “It’s because of Axe’s mentorship…it’s because of Axe’s mentorship…it’s because of Axe….”

    1. Good morning Krista!

      I’m so glad that some of the more technical aspects of the fin speak and trading make more sense after you read my take. That is exactly what I’m going for, so thank you!! My job is done! 🙂

      I’m sorry about not linking the front running reference to the glossary. Sometimes even I forget that not everyone speaks my foreign language. And it certainly doesn’t help that most everyone around me has been in the business for 20+ years. I apologize!

      You are exactly right on the black edge reference. It’s that grey area, and it is getting a lot more use after the book about Steve Cohen was published.

      Here is a link to the Ackman-Icahn brawl. https://www.youtube.com/watch?v=hCZRk1lL90Q It’s been years, but it still is epic!!

      I also have been reading the same rumors regarding Talyor. I am hoping against hope that they are not true, but I have a bad feeling Axe is going to be played this year (it was referenced in DL’s interview recently) and it just might be by Taylor.

      1. I know, right? I read same DL interview and assumed “getting played” meant Chuck. Now, I’m not so sure. Thank you for the link!!! Can’t wait to watch.

  2. Brilliant post, partner! So “Dead Cat Bounce” happens when short-sellers cover and the stock increases due to temporary demand. And when it’s gone, it falls again. It is Econ 101 – price increases with demand – but it sounds complicated when it is called “Dead Cat Bounce.” Thanks so much for clarifying it and so much more for us! I LOVE it that you make financial language so accessible. You could be a very good teacher. Because, I believe, teaching is all about making information engaging and accessible so that students pay attention and absorb 🙂

    I am a strong believer that education is the best thing anyone can have in this world. Having said that I do not believe everyone needs it to go and do the things they can. You are a perfect example of having made it right after high school! You probably did not start as a trader right away, but you had sort of an “on the job” training and made it. I salute you! But I understand when you say it may not be possible now, because the marketplace is more competitive than ever and good education gives people an edge in the competition. I would take the next step and say even good education is not enough. No wonder Billions also does a lot of name-dropping when it comes to schools – Yale, Wharton (Penn), Duke, Chicago, Stanford — all top schools. And they say “and he only went to Hofstra” for Axe. So, the “school tags” people carry on the job market make a difference, too; not only in finance but in every line of business where college education is required. I believe Axe could be a better mentor than Fama for Taylor since it is the REAL thing. Like Bryan did not learn about “vagaries” in law school, Fama would not teach Taylor “vagaries” in business school 😀

    I have not read any rumors about Taylor online, but I can imagine what people have been talking about. Taylor has been at Axe Capital for a couple of months, and they would be leaving in two weeks. One unusual thing I felt about them so far is when they told Axe: “I wanted a moment with you” Nobody asked this intern to find a case about Todd. Why did they want to show their value to Axe? Why did they care? It could be sincere. It could be strategic. Time will tell. My personal opinion at this moment is that they are sincere, but I am also thinking they will have dilemmas over the course of the season since they don’t like shady stuff. That was the first thing we learnt about Taylor when they were helping Mafee to save $10 million for the company. If I know one thing about this show, they never waste a word and always put in little hints for you to collect one by one about a character. So, I think I will just take episodes as they come and collect the clues to form my own opinion 😀

    1. Thank you! You know your kind words mean so much to me! You nailed it on the head about Dead Cat Bounce; it’s pretty logical when you explain it. As for the phrase, I don’t know why it’s called that! There are so many catch phrases that are used in this business. Ex. If a trader says he bought some Mr. Softee, they are not talking about ice cream. Microsoft trades under the symbol MSFT, hence someone came up with Mr. Softee!

      With you being a professor, I know you know the value of higher education. And I totally agree. There have been many times I wished I had went to college (especially when I was looking for a job before I started my own thing). Because I didn’t have that piece of paper, some firms wouldn’t even talk to me, even though I had been doing the actual work for years! And yes, in this business at least, school is not going to teach you instinct, or how to cage the mood and movement of a stock or the market. But back in the 80’s lots of people were able to work their way up on Wall Street. Due to there not being as many brokerage firms, and the trading floor is now all computerized, those opportunities are few and far between. Oh, and you know I want to sit in on YOUR class one day!! 🙂

      I have read a few things that Taylor is a mole. In a scene for an upcoming episode, Taylor is saying “I know you don’t want it to get in the way of winning”. I hope it’s not a temptation of Axe to fall off the wagon and do something suspect!
      I’m going to be like you: take each episode as they come and love (or hate) each character for what they currently are!

      1. I also thought the trade was literally being done with appointment when Mafee said in Episode 1 that trade on a stock was by appointment 😀 You told me it meant the stock did not have much movement. But, hey, Mr. Softee beats that!!! 😀

        I really hope you sit in my class on day – that would be a lot of fun! You may enjoy microeconomic theory or game theory, because I know even though some terminology could be foreign exactly like how “trade by appointment” or “dead cat bounce” are to me, you are already very familiar with some of the fundamental concepts thanks to what you have been doing for decades!

        Yeah, that is exactly what I thought people would be saying for Taylor. Do they give any reason? If they don’t, then it seems to me they want to say that now and then to be proven right if the show goes in that direction 😀 Hahaha I guess I just go all scientific on that and want to see at least a hint that that might be true. The interesting and GOOD thing about this show is that HOW it happens is more important than WHAT happens. So it is not that movie or book you want to watch just to see what happens in the end, but it is the way that how the story gets unfolded is what actually matters. At least for me 😀

        With respect to Axe having Taylor do something shady: I think he knows about the comparative advantages different employees have in different things. And when it comes to shady stuff, he has his other people do that for him — read “Dollar Bill” 😀 I don’t think he would have Taylor do something violating the law. Because I don’t think he would be 100% sure that Taylor would not give him away under pressure. Having said that, all depends on how the story gets unfolded, and Taylor may find themselves between a rock and a hard place and all may go awry. I am so excited that we have only two days to go until Episode 3!

  3. Great insights on financial speak! MSFT being Mr. Softee is funny! Wonder what folks call AMZN? When I didn’t want to drop names, I’d say the South American river. And I always referred to MSFT as our friends in Redmond. But that’s more of a local way to refer to one of our biggest employers.
    One guess on the origin of the term Dead Cat Bounce: You know how they say cats have nine lives? So a cat you think is dead bounces back….that’s the little blip when shorters are buying it up and it goes up briefly. But, as we saw, folks like Bobby know a dead cat when they see it. LOL
    I’m listening the Icahn/Ackman thing behind this. It’s hilarious!! Talk of expensive Italian meals…living life by hand shakes. I’m surprised the feud wasn’t made into a TV mini-series. Or maybe it was? 😀

    1. I also think that the named this episode Dead Cat Bounce, because isn’t that what Chuck does? We think he’s dead, comes back, but for how long?

      That Ackman-Icahn feud was not only great live TV, but it was old school fund manager (Icahn) vs the new money (Ackman). Two different men, from two different backgrounds. I think that is why it became a feud in the first place: they both saw the situation from different POV! They have since made up, but are still on opposite sides of the Herbalife trade!

      1. I thought exactly THAT about Chuck’s comeback and had it in my episode recap, too. I think the episode title is a brilliant wordplay!

        Is it Ackman that longed Herbalife and has been suffering losses thanks to that? I didn’t watch the video, I just remembered Damian talking about Herbalife at Times Talks this past summer.

        1. Ackman is the one who is short Herbalife. He disclosed his short position in Dec ’12 and said his avg price was in the mid $30s. Icahn longed the stock and it rose to about $81 (approx $50 per share loss). The stock currently trades $56, so Ackman is still hurting on it.

          As an aside, Ackman is not a nice guy, and a lot of people on the street were very happy to see him get burnt!

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